taxes and the business of tobacco

8/9/2019 Taxes and the Business of Tobacco

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Taxes and theBusiness of Tobacco

Frank J. Chaloupka, University of Illinois at ChicagoJ2J Tobacco’s Global Ipact !rogra

"bu #habi, U"$, %& 'arch 2(%)

%


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Overview

* Tobacco Ta+ation -hy ta+ tobacco proucts/ Types of tobacco ta+es

Tobacco ta+es globally

Ipact of ta+es an prices on tobacco use

$conoic ipact of tobacco ta+es

* The 0usiness of Tobacco Globali1ation of the tobacco inustry

Conseuences of globali1ation


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333.tobacconoics.org


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Why Tax Tobacco

Products?


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Why Tax Tobacco?

4Sugar, rum, and tobacco, arecommodities which are no where

necessaries of life, which are become

objects of almost universalconsumption, and which are

therefore extremely proper subjects

of taxation.

"a 5ith An Inquiry into the Nature and Causes

of The Wealth of Nations


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Why Tax Tobacco?

* $fficient revenue generation !riary otive historically an still true in

any countries toay

6ery efficient source of revenue given7* 8istorically lo3 share of ta+ in price in anycountries

* 9elatively inelastic ean for tobacco

proucts* Fe3 proucers an fe3 close substitutes

* :ne of any goos;services that satisfies the


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&

Why Tax Tobacco?

apoleon III


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?

Source: Tax Burden on Tobacco, 2013, and author’s calculations

@(.%)

@(.2)

@(.A)

@(.B)

@(.))

@(.)

@(.&)

@(.?)

@(.D)

@%.()

@),(((

@&,(((

@D,(((

@%%,(((

@%A,(((

@%),(((

@%&,(((

Federal Cigarette Tax and Tax RevenuesInflation Adjusted, 1955-2012

Feeral Ta+ Ta+ 9evenues

Eear

Ta+ per !ack %;%B #ollarsG9evenues 'illions of %;%B #ollarsG


9/150


10/150

WHO FCTC – Article

!rice an Ta+ 'easures to9euce the #ean forTobacco


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WHO !POW"#


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Source: Tax Burden on Tobacco, 2013, National Health Interview Survey, and author’s calculations

%&

2%

2)

2D

AA

A&

@%.)(

@2.((

@2.)(

@A.((

@A.)(

@B.((

@B.)(

@).((

@).)(

@.((

Cigarette $ri"e % Adult &o'ing $revalen"eInflation Adjusted, (nited &tates, 19)0-201*

!revalence !rice

Eear

!revalence

!rice per !ack %;%B #ollarsG


13/150

%A

Taxes$ Prices and Health% &'$ ()*+,-++.


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Why Tax Tobacco?

* Cover the e+ternal costs of tobacco

Hess freuently use otive

"ccount for costs resulting fro tobacco useipose on nonusers* Increase health care costs, lost prouctivity fro

iseases;eath cause by e+posure to tobacco soke

* Increase financial costs relate to publicly finance

health care use to treat iseases cause by tobaccouse

Can also inclue


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%)5ource7 2(%B 5urgeon General’s 9eport an Ta+ 0uren on Tobacco

@(.( @2(.( @B(.( @(.( @?(.( @%((.( @%2(.( @%B(.( @%(.( @%?(.(

@A?.&

@%(D.

@%&(.

@%)(.?

Annual +"onoi" Costs of &o'ing 2010 % Cigarette Tax % .&A Revenues 2012,/illion ollars


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Why Tax Tobacco?

*#ifferential ta+ structure to protect oesticinustry;farers Turkey 2((B consierably lo3er ta+ on cigarettes

using at least %;A oriental tobacco

Inonesia lo3er ta+es on kreteks lo3er ta+es onsall proucers

Inia lo3er ta+es on biis no ta+es on sall biiproucers

$gypt


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%&

WHO/s Best Practices inTobacco Taxation

* -se to+a!!o e#!ise ta# in!reases toa!hieve the u+li! health goal of

redu!ing the death and disease !aused+y to+a!!o use

"s calle for in "rticle of the -8: FCTC

"itional benefit of generating significantincreases in tobacco ta+ revenues in shortto eiu ter


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Ty0es of Tobacco Taxes


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* ariet of to!a""o taxes Ta+es on value of tobacco crop

Custos uties on tobacco leaf iports an;or

e+ports Custos uties on tobacco prouct iports an;ore+ports

5ales ta+es;6alue ae ta+es

Iplicit ta+es 3hen governent onopoli1es tobaccoprouct prouction an;or istribution

Tobacco e+cise ta+es or siilar ta+es


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* To!a""o +x"ise Taxes T3o types of e+cises* 5pecific Ta+es7 e+cises base on uantity or 3eight e.g. ta+

per pack of 2( cigarettes

* Ad .alorem ta+es7 e+cises base on value of tobacco

proucts e.g. a specific percentage of anufacturer’s pricesfor tobacco proucts

* 5oe countries use a i+ of specific an ad valorem tobaccoe+cises, ifferential ta+es for ifferent proucts of given type,iniu ta+es, etc.

* 'any countries apply ifferent types of ta+es an;or ta+ rateson ifferent types of tobacco proucts e.g. anufacturecigarettes vs. biis


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"xcise syste1s for ci2arettes

>uber ofcountries

%? Total covere ) 5pecific e+cise only

)( " valore e+cise only

( 'i+ture of both e+cises

2( >o $+cise

5ource7 -8: GTC9 I6


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Ty0es of Ci2arette "xcise Taxes by 3nco1e 4rou0$ -+(-

+x"ise &ste on Cigarettes

Total"ountries

>o $+cise 5pecific L "valore

:nly "6alore

:nly5pecific

51 2? 4 %A 8igh

51 & %? D %& Upper'ile

52 B %% %D %? Ho3er

'ile*2 A A %? ? Ho3

134 2( ( )( ) AllCountries

5ource7 -8: GTC9 I6


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Ci2arette Tax 'tructure$ 4lobally$ -+(-

Tpe of tax Total nu!er of "ountries 144

6o +x"ise20 .ix 59 Ad alore *4 &pe"ifi" 51

(nifor 51 Tiers 3 (nifor *0 Tiers 4 (nifor *2 Tiers 19

"fghanistan, "ntigua L0arbua,0ahrain, Iran,Ira, Kiribati,

Ku3ait, Hibya,'alives,'arshallIslans,'auritania,>iue, :an,!alau, Matar,5aint Hucia,5aui "rabia,5ierra Heone,

5oalia,Unite "rab$irates

"ustria, 0elgiu, 0osnia L8er1egovina, 0ulgaria,Chile, Costa 9ica, Croatia,Cyprus, C1ech 9epublic,Colobia, #eocratic

9epublic of Congo,#enark, #oinican9epublic, $l 5alvaor,$gypt, $stonia, Finlan,France, Gerany, Greece,8ungary, Icelan, Irelan,Israel, Italy, Joran, Kenya,Hatvia, Hithuania,Hu+ebourg, 'aceonia,'alaysia, 'alta, 'e+ico,

'ontenegro, 'orocco,>etherlans, !olan,!ortugal, 9oania, 9ussia,5erbia, 5lovakia, 5lovenia,5pain, 53een,53it1erlan, TurkeyN,Thailan, Tunisia, UK

"norra,0ra1il, China,Kyrgy1stan,'olova,!akistan, 5ri

Hanka,Ukraine

"ngola, "rgentina,0ahaas,0enin, 0olivia,0uruni,

Caboia,Caeroon,$thiopia, Gabon,Ghana,Guateala,Guinea, Guinea0issau, Guyana,Haos, Hebanon,'aagascar,>iger, >igeria,

!araguay,93ana,5uan, 5yria,Togo,Turkenistan,6ene1uela,6ietna, Eeen,Oabia

0anglaesh,0urkinaFaso, IvoryCoast,5enegal,

'ali,'yanar

"lbania, "ustralia, "1erbaiPan,0arbaos,0ots3ana, 0runei,Canaa, Cook

Islans, Cuba,$cuaor, 8aiti,8onuras, Jaaica,Japan, Hesotho,'acao, 'ala3i,'auritius, >aibia,>icaragua, >or3ay,!anaa, !eru,5ingapore, 5outh "frica, 5outh Korea,

5urinae,53a1ilan, Tai3an,Trinia L Tobago,Unite 5tates,Uruguay

"lgeria, "renia,0elarus,0eli1e, FiPi,Georgia,

8ong Kong,Inia,Inonesia,Ka1akhstan,'o1abiue,>epal, >e3Oealan,!apua >e3Guinea,!hilippines,

TaPikistan,Tan1ania,Ugana,U1bekistan

Note/ The follo$ing !ountries imosed a minimum ta# in addition to their statutory rates/ the 01 (- !ountries, Israel, )ussia, S$it2erland,

Tur"ey, Tur"menistan and -"raine3 4 Tur"ey5s e#!ise system !hanged from uniform ad valorem to uniform mi# in 0678Sour!e/ T%A 0670 and W9'


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5ifferent bases for tiered syste1s31 (19%) of 165 countries covered have a tiered system

Seven !ountries differentiate their e#!ises +ased on more than one !riteria/ Andorra, :elarus, India,Indonesia, %o2am+ique, Neal and &hiliines* Sour!es T%A 0670 and W9'

# of

countri

es

Country Base of tiers

0anglaesh, 'o1abiue, !hilippines, 0elarus, Inonesia,!akistan

Retail pri"e

2 0urkina Faso, 5enegal 7ig#, standard and lo8 end "igarettes

% China $rodu"er pri"e

% Inonesia $rodu"tion volue

%% "renia, 0elarus, Inia, >epal, Georgia, Ka1akhstan,Kyrgy1stan, 'olova, !apua >e3 Guinea, TaPikistan, Ukraine

filter;non filter

Tpe

A Inonesia, Inia, !hilippines hand;ma!hine made

2 Inonesia, 'yanar "rete";$hite !igarette,

!heerot;!igarette

2 "norra, "lgeriaTo+a!!o !ontent epal, 8ong Kong, 5ri Hanka Cigarette lengt#

2 "norra, U1bekistan Trade doesti"iported

2 0eli1e, >e3 Oealan :eig#t to!a""o "ontent in "igarette

% FiPi ;eaf "ontent doesti"iported


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Avera2e 0rice and excise tax by tax structure$ -+(-

5ource7 -8: 2(%A

Average ex"ise $$$ Average pri"e $$$ +x"ise tax stru"ture

1


26/150

Cigarette Tax &tru"ture % $ri"es

5ource7 Chaloupka, et al., 2(%B

(.((

(.%(

(.2(

(.A(

(.B(

(.)(

(.(

&tandard eviation, $ri"es of Top 5 /rands


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* 5ipler is better Cople+ ta+ structures ore ifficult to

ainister Greater opportunities for ta+ evasion an

ta+ avoiance uner cople+ ta+structures

-here e+isting structure is ore cople+,siplify over tie 3ith goal of achievingsingle unifor ta+


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* 9ely ore on specific tobacco e+cises as theshare of total e+cises in prices increases Greater public health ipact of specific e+cises

given reuce opportunities for s3itching o3n inresponse to ta+;price increases

5ens clear essage that all brans are euallyharful

-here e+isting ta+ is a valore, aopt a specificta+ an increase reliance on specific ta+ over tie


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9ecoenations 5ection A Tobaccota+ation systes

syste that eets their public health an fiscal nees,an taking into account their national circustances.!arties shoul consier ipleenting specific or i+ee+cise systes 3ith a iniu specific ta+ floor, asthese systes have consierable avantages overpurely a valore systes.=

Article 4uidelines



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* "opt coparable ta+es an ta+ increases onall tobacco proucts 9euces potential for substitution to other

proucts that 3oul result fro ifferential ta+treatent an;or ta+ increases

'a+ii1es public health an revenue ipact ofta+es;ta+ increases

* Harm reduction?


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5ource7 -8:, unpublishe ata

Tax as a Percent of Price$ 6ariousProducts$ "uro0ean &nion$ 7uly -+(-

(Q

%(Q

2(Q

A(Q

B(Q

)(Q

(Q

&(Q

?(Q

D(Q

Cigarettes Fine cut tobacco 9E: Cigars an cigarillos


33/150

(

)((,(((

%,(((,(((

%,)((,(((

2,(((,(((

Taxa!le R=> and $ipe To!a""o(&, 2003-2009

9E: !ipe Tobacco

$

ounds

5ource7 U5 Treasury #epartent, "lcohol an Tobacco Ta+ an Trae0ureau


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9ecoenations 5ection A Tobacco ta+ation

systes



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To!a""o Taxes, $ri"es

% To!a""o (se


36/150

A

Taxes, $ri"es %To!a""o (se

* In"reases in to!a""o produ"t taxes and pri"es7 Inuce current users to try to uit

* 'any 3ill be successful in long ter

Keep forer users fro restarting

!revent potential users fro starting* !articularly effective in preventing transition fro

e+perientation to regular use

9euce consuption aong those 3ho continue to use

Hea to other changes in tobacco use behavior,incluing substitution to cheaper proucts or brans,changes in buying behavior, an copensation


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Taxes, $ri"es % To!a""o (seInflation adjusted "igarette pri"es and "igarette "onsuption,

(nited @ingdo, 19)1-1994

5ource7 To3nsen %DD?

9000

10000

11000

12000

13000

14000

15000

16000

17000

1971 1974 1977 1980 1983 1986 1989 1992 1995

Year

£ 1.25

£ 1.45

£ 1.65

£ 1.85

£ 2.05

£ 2.25

£ 2.45

£ 2.65

$

r i c e !

" # 1 9 9

% a

l u e

PRICE

CONSUMPTION


38/150

T $ i % T ! (


39/150

Taxes, $ri"es % To!a""o (se

Source: Aloui, 2003

Inflation Adjusted Cigarette Prices andCigarette Consumption, Morocco, 1965-2000

Ci tt $ i % C ti


40/150

Cigarette $ri"e % Consuption7ungar, 1990-2011, Inflation Adjusted

5ources7 $IU, $9C, an -orl 0ank

%DD( %DD% %DD2 %DDA %DDB %DD) %DD %DD& %DD? %DDD 2((( 2((% 2((2 2((A 2((B 2(() 2(( 2((& 2((? 2((D 2(%( 2(%%%A,(((

%),(((

%&,(((

%D,(((

2%,(((

2A,(((

2),(((

2&,(((

(

%((

2((

A((

B((

)((

((

&((

Consuption, 'illion 5ticks Hinear Consuption, 'illion 5ticksG

!rice , 2(%% Fo ri nts Hin ear !ri ce, 2( %% Fori nts G

'illion 5ticks

!rice, 2(%% Forints;!ack



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5ource7 09F55, Ta# :urden on To+a!!o, 2(%(, an author’s calculations

A)( B(( B)( )(( ))( (( )( &(( &)( ?(( ?)(D

%%

%A

%)

%&

%D

2%

2A

2)

f+ R (.(%+ S 2).)29 R (.%&

Cigarette and Adult &o'ing $revalen"e(& &tates % C, 2009

Average pri"e, in "ents

$revalen"e

Ad lt $ l % $ i / il


42/150

2(( 2((& 2((? 2((D 2(%( 2(%% 2(%2 2(%A%%

%2

%2

%A

%A

%B

%B

%)

%)

%

%

A.B

A.D

B.B

B.D

).B

Adult &o'ing $revalen"e and Cigarette $ri"e/raBil, Inflation Adjusted, 2004-201*

5ales, 'ill ion 5ticks !rice per !ack, 2(%A 09H

Adult &o'ing $revaleen"e $ri"e per $a"', 201* /R;

Adult $revalen"e % $ri"e, /raBil

5ources7 'inistry of 8ealth, 0ra1il $IU -orl 0ank


43/150

(

)(,(((

%((,(((

%)(,(((

2((,(((

.ont#l2 uit ;ine Calls, (nited &tates110D-1109

4/1/09 Federal Tax Increase

%;%;(? -I Ta+ Increase


44/150

5ource7 09F55, Ta# :urden on To+a!!o, 2(%(, an author’s calculations

A)( B(( B)( )(( ))( (( )( &(( &)( ?(( ?)(B)

)(

))

(

)

&(

f+ R (.(A+ S BA.(?9 R (.A&

Cigarette $ri"es and Cessation(& &tates % C, 2009

Average pri"e in "ents

E +ver &o'ers :#o 7ave uit

fF+G R9T R (

Cigarette $ri"es and =out# &o'ing $revalen"e (& &tates % C 2009


45/150

5ource7 E905, Ta# :urden on To+a!!o, 2(%(, an author’s calculations

A)( B(( B)( )(( ))( C(( C)( &(( &)( ?(( ?)(

&

D

%%

%A

%)

%&

%D

2%

2A

2)

2&

Cigarette $ri"es and =out# &o'ing $revalen"e (& &tates % C, 2009

Average pri"e in "ents-

$revalen"e

Ci tt $ i % = t# & 'i $ l


46/150

Sources: Tax Burden on Tobacco, !S" MT#" $%& $u'(or)sc$*cu*$'+o%s

%DD% %DD2 %DDA %DDB %DD) %DD %DD& %DD? %DDD 2((( 2((% 2((2 2((A 2((B 2(() 2(( 2((& 2((? 2((D 2(%( 2(%% 2(%2 2(%A

@2.&)

@A.)(

@B.2)

@).((

@).&)

@.)(

%

2%

2

A%

A

Cigarette $ri"e % =out# &o'ing $revalen"e7ig# &"#ool &eniors, (nited &tates, 1991-201*

Cigarette !rice %2th grae prevalence

$ri"e per $a"' 11D ollars

&o'ing $revalen"e, 12t# ?rade &tudents

$ri"e Cons ption % ; ng Can"er Fran"e


47/150

$ri"e, Consuption % ;ung Can"er, Fran"e

5ources7 Jha L 8ill, 2(%2

1


48/150

>t#er Issues in To!a""o

Taxation


49/150

:7>Gs /est $ra"ti"es in To!a""o

Taxation

* "utoatically aPust specific tobacco ta+esfor inflation Unless aPuste, real value falls over tie, as

oes the real value of revenues generate by ta+

$nsures the public health ipact of ta+ isaintaine

To ate, not 3iely one* "ustralia, >e3 Oealan, a fe3 others


50/150

)(


Taxation

* Increase tobacco ta+es by enough to reucethe afforability of tobacco proucts In any lo3;ile incoe countries, positive

relationship bet3een incoe an tobacco use

Iplies consuption increases even as ta+esincrease if increases in incoe larger * #epens on relative price, incoe elasticity

Increasing afforability 3ill result in increasingtobacco use, conseuences

Ci $ i % Ci C i


51/150

% 2 A B ) & ? D %((.D&

%.%&

%.A&

%.)&

%.&&

%.D&

(.D

2.D

B.D

.D

?.D

&(.D

9eal !rice per !ack !er Capita Consuption

$r i"e

1990 R./

$a"'s

per Capita

Cigarette $ri"es % Cigarette ConsuptionChina, %DD2((), Inflation "Puste


I % Ci tt C ti


52/150

% 2 A B ) & ? D %(2.?

A.A

A.?

B.A

B.?

).A

).?

.A

(.D

2.D

B.D

.D

?.D

&(.D

9eal Incoe per Capita !er Capita Consuption

I

n

"

o

e

p

e

r

C

a

p

i

t

a

1

0

0

0

1

9

9

0

R

.

/

$a"'s

$er Capita

In"oe % Cigarette ConsuptionChina, %DD2((), Inflation "Puste


Aff d !ilit % Ci tt C ti


53/150

%.?D

%.DB

%.DD

2.(B

2.(D

(.D

2.D

B.D

.D

?.D

&(.D

"fforability !er Capita Consuption

A

f

f or d

a!

ilit2

199

0H1

$a"'s

$

er Cap

it

a

Afforda!ilit % Cigarette ConsuptionChina, %DD2((), Inflation "Puste


I fl ti0 % Aff d !ilit Adj t t


54/150

Inflati0n % Afforda!ilit Adjustents "ustralia, 2(((2(%B, Inflation "Puste

@(.((

@2.((

@B.((

@.((

@?.((

@%(.((

@%2.((

@%B.((

@%.((

$+cise Ta+ G5T Inustry !rice


55/150


56/150

To!a""o Taxes as $art

of Copre#ensive

Approa"#

:7>G / t $ ti i T !


57/150


Taxation

* Inclue tobacco e+cise ta+ increases as partof a coprehensive strategy to reucetobacco use

5ynergies 3ith other policies calle for by -8:FCTC, '!:-$9 package

Coprehensive efforts strengthen social norsagainst tobacco, buil public an political support

for ta+ increases 'a+ii1e the ipact of the ta+ increases on

public health* 0ut reuce revenue ipact


58/150

+arar'ed To!a""o Taxes


59/150

+arar'ed To!a""o Taxes

5ource7 -8: 2(%(


60/150

5ource7 IpacTeen !roPect, UIC E905

$0

$200

$400

$600

$800

$1,000

19

21

23

25

27

29

31

33

35

37

State Tobacco Control Program

Funding and Youth Smoking Prevalence, United States, 1991-29

total state program funding high school prevalence

Year

Total Funding

!"illions #FY1 dollars$ Percent Current Smoking

!to"acconomics!org

A ti l 4 ? id li


61/150

#ecommendations $ %ection 5 & 'se of#evenues & (inancing of )o"acco *ontrol

+arties could consider, hile "earing in mind-rticle 26!2 of the ./ (*)*, and in accordance

ith national la, dedicating revenue to to"acco$control programmes, such as those coveringaareness raising, health promotion and diseaseprevention, cessation services, economicall

via"le alternative activities, and financing ofappropriate structures for to"acco control!

Arti"le 4 ?uidelines

!to"acconomics!org


62/150

:eig#ted average $ri"e of t#e .ost &old


63/150

/rand % +x"ise Tax per pa"', and Total Tax

are 9ncome :roup 2012

%ource; ./ :)*# 9<

=ote ; -verages ere eighted " num"er of current cigarette smoers in each countr!ecause of the ver large num"er in *hina, *hina>s estimates ere added separatel!

8igh incoe Upper ile Ho3er ile Ho3 incoe China "ll

).?2

A.2D

2.&

%.)

%.%?

A.((A.%2

%.)&

(.D&(.%

(.A%

%.A)

).D(Q

A.ABQ

B?.&2Q)(.A%Q

B(.&Q

)?.B(Q

9etail price, !!! $+cise ta+ !!! Total ta+ share Q

$$$



64/150


/rand % +x"ise Tax per pa"', and Total Tax

are 0y 9egion 2(%2

5ource7 -8: GTC9 I6

Note / Averages $ere $eighted +y num+er of !urrent !igarette smo"ers in ea!h !ountry*

"F9: "'9: $'9: $U9: 5$"9: -!9:

2


65/150

Arti"le 4 ?uidelines - Text


66/150


67/150


68/150


69/150

To!a""o Taxes % Tax Revenues

* 'yth7 increases in tobacco ta+es 3illlea to lo3er tobacco ta+ revenuesgiven reuctions in tobacco use



70/150

To!a""o Taxes % Tax Revenues

* Fact7 tobacco ta+ increases lea toincrease ta+ revenues

Tobacco ta+es account for a fraction of tobaccoprices

* Increase in ta+ leas to saller increase inprice

9euctions in tobacco use less thanproportionate to price increase


Cigarette real pri"e % real tax


71/150

Cigarette real pri"e % real tax

revenue (nited @ingdo

5500

6000

6500

000

500

!000

!500

"000

#1$%0

#1$"0

#2$%0

#2$"0

&ear

'a(ation revenue)# *illion+

,rice )#+ 1""% value

Ta+ revenue

!rice

5ource7 To3nsen, 2(%(


72/150

To!a""o ex"ise tax % tax revenues


73/150

To!a""o ex"ise tax % tax revenues

$oland

&A

5ource7 5toklosa L Ciecierski, 2(%(

Perce%'$,es($re o- ec+se

'$ +% re'$+* /r+ceo- MPPCc+,$re''es

To$cco ec+se'$ ree%ue +%Po*$%& +% *%P!N

Source: Ministry ofFinances

The e+cise ta+ revenue is increasing along 3ith the ta+ rates


74/150

To!a""o Taxes -

>ppositional Arguents

Ipa"t on t#e $oor

C %


75/150

To!a""o Control % t#e $oor

* 'yth7 tobacco control hars the poor


T ! C t l % t# $


76/150

To!a""o Control % t#e $oor

* Fact7 tobacco use hars the poor


To!a""o % $overt


77/150

*cle ofto"acco andpovert

Poor mensmoke

Foregone income 1:More money spent Less money spent

on tobacco: on Education, nutrition etc

High opportunity cost

%read&inner getssick due totobacco use

Foregone income 2:

Treatment cost &

Lost working days &income

Foregone income 3: Breadwinner dies

prematurey

Famiy !as into po"erty

To!a""o % $overt

5ource7 Eurekli, 2((&


78/150


79/150

Cro8ding >ut


80/150

?(

Cro8ding >ut

1) ITC Countries

Source: I'- ro.ect, 2012

Tobacco cro3s outspening on essentials.

Greater cro3ing out inH'ICs

T ! T % t# $


81/150

To!a""o Taxes % t#e $oor

* 'yth7 tobacco ta+ increases har thepoor



82/150

:#o $as% :#o /enefits


83/150

Tur'e - 25E Tax In"rease

5ource7 "apte fro ner L EVrekli, 2(%B

AQ

A%Q

2Q

2%Q

%Q

%%Q

Q

%Q

BQ

DQ

A).AQ

2(.BQ

%?.)Q

2.2Q

?.)QD.&Q

Change in Consuption Change in Ta+es !ai

:#o $as% :#o /enefits C#ina


84/150

:#o $as% :#o /enefits, C#ina

5ource7 Jha, et al, 2(%2

;o8 &+& group$as 4


85/150

p

on t#e $oor

>ee to consier overall fiscal syste

* Key issue is 3hat’s one 3ith the revenues generateby the ta+

* Greater public support for tobacco ta+ increases 3henrevenues are use for tobacco control an;or otherhealth progras

* >et financial ipact on lo3 incoe househols can bepositive 3hen ta+es are use to support prograstargeting the poor

* Concerns about regressivity offset by use of revenuesfor ro ras irecte to oor 333.tobacconoics.org


86/150

To!a""o Taxes -


Ipa"t on +ploent

To!a""o Taxes % +ploent


87/150


* 'yth7 tobacco ta+ increases another tobacco control policies 3ill

result in significant Pob losses astobacco use falls




88/150


* Fact7 tobacco control 3ill result in netincrease in Pobs in ost countries


To!a""o-Related +ploent


89/150

p

* 6ery sall share of eployent dependent ontobacco gro3ing an anufacturing in ostcountries* $conoic presence oes not iply econoic

epenence* $ployent in tobacco anufacturing falling over

tie in response to tobacco inustry shift to orecapital intensive prouction technologies.

* Can use revenues fro tobacco ta+es to help thosein tobacco gro3ing;anufacturing shift to othersustainable livelihoos



90/150


91/150

To!a""o Taxes -


Tax Avoidan"e % +vasion

To!a""o Taxes % Illi"it Trade


92/150


* 'yth7 tobacco ta+ increases 3ill lea toincreases in illicit trae, eliinating the

public health an revenue benefits ofhigher ta+es




93/150


* Fact7 tobacco use falls an ta+ revenuesincrease follo3ing ta+ increases even in

the presence of illicit tobacco trae


Tax Avoidan"e % +vasion o 6>T +liinate


94/150

7ealt# Ipa"t of 7ig#er Taxes

5ource7 5chroth, 2(%B333.tobacconoics.org

Tax Avoidan"e % +vasion


95/150

D)

o 6>T +liinate Revenue Ipa"t of

7ig#er Taxes



96/150


* Fact7 other factors ore iportant thantobacco ta+es an tobacco control

policies in e+plaining illicit trae


Illi"it Cigarette .ar'et are


97/150

% Cigarette $ri"es, 2012

0 2 4 6 8 10 12 14

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

-

R 0Pr+ce US

I**+c+' 'r$&e s($re $s o- *e,$* c+,$re''e co%su/'+o%

5ources7 $uroonitor, -8:


eterinants of Illi"it To!a""o


98/150

Corruption -eak ta+ ainistration

* "bsence of ta+ staps 3eak or none+istent

physical controls unlicense anufacturers,istributors, retailers 3eak custosauthorities

!oor enforceent* Hiite resources for borer patrols, custos

authorities, etc lo3 penalties



&uggling and Corruption, 2011


99/150

gg g p ,

1 2 3 4 5 6 7 8 9 10

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

-

R 0 Tr$%s/$re%c I%&e

+**+c+' c+,$re''e 'r$&e o*ue

5ources7 $uroonitor, Transparency International




100/150

!resence of inforal istribution channels

* e.g. 5treet venors, unlicense istributors

!resence of criinal net3orks* e.g. :rgani1e crie, terrorist organi1ations

"ccess to cheaper sources

* e.g. uty free, cross borer


Controlling Illi"it To!a""o Trade


101/150

Controlling Illi"it To!a""o Trade

* Fact7 there e+ist effective

interventions to reuce illicit traein tobacco proucts


Cigarette Taxes and Illi"it Cigarette


102/150

.ar'et, &pain 1991-2003


Co!ating Illi"it To!a""o Trade


103/150

g* Illicit trae protocol to the -8: FCTC

"opte >oveber 2(%2 currently in process of beingsigne;ratifie provisions calling for7

5trong ta+ ainistration* !roinent, hightech ta+ staps an other pack arkings

* Hicensing of anufacturers, e+porters, istributors, retailers* $+port bons

* Uniue ientification coes on packages

0etter enforceent*

Increase resources* Focus on large scale suggling

53ift, severe penalties

'ultilateral;intersectoral cooperation



104/150

&uar

Cost +ffe"tiveness of To!a""o Taxes


105/150

5ignificant tobacco ta+ increases ake gooeconoic sense7

* >ot Pust longter public health, but nearter

health an econoic benefits

* Tobacco control 3ill not har econoies

* 5ubstantial ipact in reucing health care

costs, iproving prouctivity, an fosteringeconoic evelopent.

Cost +ffe"tiveness of To!a""o Taxes


@e To!a""o Control $oli"iesCost-+ffe"tiveness


106/150

Cost-+ffe"tiveness

5ource7 -8:, unpublishe ata

@(

@%,(((

@2,(((

@A,(((

@B,(((

@),(((

@,(((

8igh Incoe Upper 'ile Incoe Ho3er 'ile Incoe Ho3 Incoe

Cost per A;= Averted


107/150

T#e /usiness of To!a""o

>vervie8


108/150

* Globally, the tobacco inustry continues toevolve an arket po3er has increase This has conseuences for tobacco use an

tobacco control* Inustry strategy can unerine tobacco

control 0ut a glo+ali2ed inustry no3 faces glo+ali2ed

tobacco control



109/150

Fa"tors Contri!uting to Industr


110/150

+volution

* 0ilateral, regional, an global trae agreeents* Hoosening of restrictions on foreign irect

investent

* !rivati1ation of governent run tobaccocopanies " fe3 significant e+ceptions

* Consoliation aong ultinational tobacco

copanies* #iversification of prouct lines

* Tobacco control policies L regulation


111/150

?lo!al ;eaf To!a""o +xports %


112/150

5ource7 F":5T"T 2(%B

alue, 1941-2011

(

)((

%,(((

%,)((

2,(((

2,)((

A,(((

@(

@2,(((

@B,(((

@,(((

@?,(((

@%(,(((

@%2,(((

$+ports, %,((( Tonnes $+port 6alue, 'illion #ollars

+xports, 1,000 Tonnes +xport alue, .illion ollars

?lo!al Cigarette +xports % alue,

1941 2011


113/150

5ource7 F":5T"T 2(%B

(

2((

B((

((

?((

%,(((

%,2((

@(

@),(((

@%(,(((

@%),(((

@2(,(((

@2),(((

$+ports, %,((( Tonnes $+port 6alue, 'illion #ollars

.illion Tonnes .illion ollars

1941-2011

Trade Agreeents - ipa"t


114/150

g p

* Ipact of freer trae on tobacco use Chaloupka L Hai+uthai %DD e+aine ipact of

5ection A(% agreeents* 5ignificant increases in tobacco use, arket share of U5 copanies

Taylor, et al. 2((( !erucic, et al. in progress

global analyses separately for lo3, ile, an highincoe countries

* 'ore open arkets lea to significant increases in tobacco use* Greatest ipact in lo3er incoe countries

Increase tobacco use likely the result of greatercopetition7* Ho3er prices

* Increase arketing

ire"t Investent % $rivatiBation


115/150


* :pening of arkets has also resulte inincrease openness to irect investent Investent in ne3 prouction facilities;capacity

o3ne an operate by ultinational tobacco

copanies !rivati1ation of forer governent o3ne;operate

tobacco copanies* for e+aple, Turkish T$K$H sol to 0"T in 2((? after being

on the arket for any years Joint ventures bet3een local onopoly an

ultinational tobacco copanies* For e+aple, !'I an C>TC, 6inataba, an other national

onopolies



116/150


* !ublic health "on"erns about F#I anprivati1ation Governent efforts to attract investors;buyers can

lea to agreeents that governent 3on’t aopt

higher ta+es, strong tobacco control policies Increase presence of ultinationals 3ill lea to

3iesprea use of sophisticate arketing practices

Tobacco use 3ill be higher than it 3oul be other3ise

* !ublic health !enefits of privati1ation $liinates conflict of interest bet3een revenues

generate fro prouction;sale of tobacco anhealth;econoic benefits of tobacco control

Ipa"t of ire"t Investent


117/150


Cigarette !rices, Ukraine, 2(((2((

5ource7 9oss et al., 2((?



118/150


Cigarette Consuption, Ukraine, %DD(2((

5ource7 9oss et al., 2((?

$rivatiBation 8it# &trong To!a""oControl Tur'e


119/150

Control Tur'e

5ource7 CTFK, 2(%2333.tobacconoics.org

.ergers % A"Juisitions


120/150

* Consierable consoliation aong tobacco

"opanies "cuisition of local cigarette copanies by

'ultinationals 'TCs "cuisition of popular local brans e.g. 0"T acuisition of

!rotabaco 2n

largest Colobian copany in 2(%% 'ergers bet3een local tobacco copanies an 'TCs

For e+aple, !'I an Fortune Tobacco Copany erger in 2(%(nearly onopoli1es !hilippine cigarette arket

"cuisition of one 'TC by another 'TC For e+aple, Iperial Tobacco Group’s acuisition of "ltais in

2((? 9J9 acuisition of Horillar in U5 2n L Ar largest U5copanies

:thers to coe/

Cigarette Copan .ar'et ares


121/150

g p

5ource7 %a#$ell To+a!!o >a!t :oo" , various years $uroonitor, 2(%B

%D?)2(%A, 5electe Eears

%D?) %DD( %DD) 2((( 2(( 2(%( 2(%A(Q

%(Q

2(Q

A(Q

B(Q

)(Q

(Q

&(Q

?(Q

D(Q

%((Q

C>TC !'IS"ltria 0"T JTI ITG :thers


122/150

.ergers % A"Juisitions


123/150

* Co!ined 8it# developent and ar'eting

of ne8 produ"ts >early every 'TC eveloping;arketing electronic proucts an

other nontobacco nicotine proucts

2(%% 0"T creates >icoventures to evelop reuce risktobacco proucts, other nicotine elivery proucts

* 5eeking approval for 6oke nicotine inhaler to be license as aeical evice

2(%2 "ltria arkets 6erve a nontobacco, nicotine lo1enge

2(%B 9J 9eynols go nation3ie 3ith nicotine gu Oonnic,arkete as cessation ai

2(%B 8eat not burn proucts eerging !loo partiallyo3ne by JTI, iM:5 8eat5ticks !'I, others

'ore to coeWW


124/150

?lo!al To!a""o .ar'et, 201*


125/150

$uroonitor, 2(%)



126/150

$uroonitor, 2(%B



127/150

$uroonitor, 2(%)



128/150

$uroonitor, 2(%B


129/150

$uroonitor, 2(%B

$ri"ing $o8er


130/150

%A(

g


131/150

$uroonitor, 2(%B

/rand ares, 201*&


132/150

$uroonitor, 2(%B

(

%

2

A

B

)

&&

2.B 2.B 2.A

2 %.D %.D %.D %.? %.& %.& %. %.) %.B %.B %.A %.A %.2 %.2 %.% %.% %.% % % % %

/rand ares ! Region, 201*


133/150

$uroonitor, 2(%B

$#ilip .orris International


134/150

$uroonitor, 2(%B

/ritis# Aeri"an To!a""o


135/150

$uroonitor, 2(%B


136/150

ConseJuen"es of?lo!aliBation for

To!a""o Control


137/150

C#allenges to 6ational To!a""o

C t l $ li i


138/150

Control $oli"ies

* -ithin countries 7 national, subnational la3s !hilip 'orris challenge of >or3ay tobacco prouct isplay ban

Favorable $FT" ruling ban uphel by :slo #istrict Court

* 5tate5tate isputes trae treaties Inonesia;U5 ispute over U5 ban on flavore cigarettes 'ultiplechallenges to "ustralia’s tobacco plain packaging easure

* Investor5tate isputes bilateral investent

treaties !hilip 'orris "sia challenge of "ustralian plain packaging policyuner bilateral investent treaty bet3een 8ong Kong L "ustralia


139/150


140/150

%B(


141/150


142/150

%B2


143/150

Regulator C#allenges for

6e8 $rodu"ts


144/150

6e8 $rodu"ts

* >ee for tobacco control policies L regulation toa+ii1e the net public health ipact

* Coul inclue7 Hiits on youth access

Inclusion of vaping proucts uner sokefree policies

5trong prouct stanars

#ifferential ta+ation

"llo3 soe fors of arketing

* >et public health ipact of $>#5, othereerging proucts unclear

RegionaliBation of $rodu"tion


145/150

* Consoliation;centrali1ation of prouction inregional prouction hubs Capitali1e on significant econoies of scale in

prouction of tobacco proucts

Take avantage of regional trae agreeents thatgreatly reuce or eliinate barriers to trae in tobaccoproucts

Generally locate in7* Harge consuing country 3ithin region

* Country 3here labor, tobacco leaf, other costs are lo3

* >ot associate 3ith tobacco ta+ rates

Total Tax as $er"entage of Retail $ri"e of .ost

&old /rand and $rodu"tion as $er"entage of

Total &uppl 2012


146/150

5ource7 -8:, 2(%A333.tobacconoics.org

;er$+(s'$%

C$eroo%

e*,+u

?u%,$r

Total &uppl, 2012

?lo!aliBation of To!a""o Control

:7> FCTC and .$>:+R


147/150

:7> FCTC and .$>:+R

* Gives priority to public health* 9ecogni1e nee for international

action an cooperation

* $viencebase* 'inful of potential social an

econoic ipact of tobaccocontrol efforts

* Concerne about role of inustry* A glo!al pu!li" good


148/150

&uar % Con"lusions


149/150

For ore inforation


150/150

To!a""onoi"s

#ttp888

taxes and the business of tobacco

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